1st test:
with a +64.tga sprite strip I get the same result, both with or without a entity shader (in case of the shader I set both the ent.frame and do proper UV animation in the shader).

I still have no idea how I could solve it by a material event, but I'm sure I want to avoid to use 2 depth views because it is a performance sensitive situation. indeed the billboard lod itself is made because of performance gaining.

the strange thing is that as I remember earlier with a simple +10 sprite sometimes I got good, sometimes similarly bad results...

moreover imo it should be supported by the engine without workarounds. maybe jcl can give a simple answer...

p.s.
I exceeded the file name length limit of 20 characters, but the same happens now with a short named file placed in the game folder.